Tuesday, November 23, 2010

I'm reading Adam Fergusson's "When Money Dies" (pdf), about the Weimar inflation, and a few new facts (new to me, anyway) stand out :

1) Germany had been printing or borrowing money (from its citizens in the form of War Loan) all through WWI - in contrast to the British emphasis on taxation. While this printing increased as they headed towards the cliff-edge in 1921 and 1922, to an extent forced by the Allies' unrealistic reparation demands, it was in line with what had gone before. Dr Hjalmar Schacht :

"Germany tried to meet the colossal costs of the war by an appeal to the self-sacrificing spirit of the people. 'I gave gold for iron' was the slogan for the surrender of gold ornaments and jewellery. 'Invest in War Loan' ran the appeal to the patriotic sense of duty of all classes. Issue after issue of War Loan transformed the greater part of German private fortunes into paper claims on the State. Our enemies, especially Britain, took another line. They met the cost of war with taxes aimed primarily at those industries and groups to whom the war spelled prosperity. Britain's policy of taxation proved socially more equitable than Germany's policy of War Loans which lost their value after the war was over …"

And those paper claims on the State proved valueless.

2) The central bankers and politicians seem to have been unaware that the rapid depreciation of the Mark might have anything to do with their printing, while industrialists welcomed currency depreciation as improving their export potential (shades of Darling and Bernanke), but simultaneously moved as much of their wealth as possible either overseas or into hard assets.

Dr Rathenau did his best to explain to the Reichstag what was happening to the mark by alluding lengthily to the vicious circle of an adverse trade balance, the consequent necessity to sell German currency abroad, and its resulting depreciation, followed by the fall in the exchange rate and inevitable rise of home prices, leading to increased costs of materials and labour and so to new rifts in the budget. He expressly and publicly denied that the printing press had any role to play in that permanently spiralling sequence of events ...Most successful businessmen, however, stuck happily to the heresy that only by a continually falling exchange rate could Germany compete in neutral markets.

3) the money-printing, while impoverishing those on fixed incomes, did keep employment up when in the UK two million men stood idle. Basil Blackett, Treasury Finance controller :

In spite of his robust common sense, the man in the [German] street is beginning to believe what some interested industrialists are telling him, so that he seems almost readily to subscribe to the false doctrine that it is good for trade that a government, by inflationary finance, should habitually spend more than its income… Even the German industrialist knows that the present activity of German industry (destroying the export trade of its neighbours) is a sign of fever and not of prosperity. But, as usual, each class in Germany thinks that the burden of taxation should fall on some other class or classes … Even the best disposed are inclined in a fatalistic way to let things take their course and wait for the world to recover its reason. The big industrialists are attempting to save something from the wreck by turning all the paper marks they can into foreign currencies or, failing that, into real things — land, machinery, and so on, which have an independent value … The incentive to saving is gone just when saving is of vital necessity to the State...

The one real temporary advantage is that Germany's workmen are in employ, but even this is mainly due not to successful exporting but to the misdirected consumption of holders of paper marks who want to get rid of them, and therefore to misdirected production, which actually interferes with the proper flow of exports and to some extent increases the amount of luxury imports. That the government has been or is deliberately pursuing a policy of inflation so disastrous for any government that adopts it is sufficiently disproved. It is partly weakness and inexperience which have prevented greater success.

3) I hadn't realised quite what a very bad way immediate post-war Germany was in. Years before Hitler's Munich putsch, right-wing ex-soldiers were attempting coups - and there was a steady drip of right-inspired assassinations, reminiscent of the left-inspired assassinations of late Republican Spain :

One Herr Harden, whom Lord D'Abernon (British Ambassador) described as an acute if somewhat acid observer, explained to him that 'the followers of the Right were perpetually hunting for the old culprits responsible for the downfall of the empire and the old system, but instead of attacking the generals — Ludendorff and company — who were really the cause, or the old gang of princes and sycophants, they reviled the Jews and assassinated the leaders of the Left together with those who did not take their own perverted view.' More than three hundred assassinations among the leaders of the Left had been perpetrated since the Armistice, Herr Harden said, 'and no one is punished.'

All this while hardly anyone had heard of Hitler. The DNVP was the party trebling its vote, and the rhetoric of the right didn't need much tweaking for when people had heard of Hitler.

On August 24 1921, Ludendorff took the march-past of 2,000 war veterans headed by the 39-year-old Prince Eitel Friedrich, second son of the Kaiser. They marched under an archway bearing the inscription 'In Kriege Unbesiegt' (unbeaten in war), and past the royal box in Paradeschritt, Prince Eitel Friedrich throwing his heels as high as anyone else. Then in front of 20,000 spectators there followed a sermon by the Army chaplain which suggested that Germany's greatness could only be recovered by military power, through the monarchy and the Hohenzollerns. There were speeches in the same strain by the three generals present, Ludendorff, Graf Waldersee and von der Goltz. Von der Goltz, who had commanded the Baltic Free Corps, was at pains to attack the 'Jew Government', and thus caused some anti-Semitic incidents in the crowd; but he stole the limelight in any case by producing telegrams of congratulations not only from Admiral Scheer and Grossadmiral von Tirpitz, but from Hindenburg and the ex-Kaiser himself.

I'm also reading Lord Carver's history of the Turkish Front in WWI - in which the author wonders what would have happened had Churchill not decided to requisition (or pinch) two ships being built for the Turkish Navy. Up to that time the Ottoman Navy had been trained by British officers, but the Germans seized the opportunity to offer two similar ships to them - under a German Admiral. Admiral Souchon, doubtless prompted by Berlin, then attacked Britain's ally, Russia, in the Black Sea - and Turkey was in the war on the German side.

At the time Ottoman Turkey had de jure sovereignty over Egypt (in fact British-controlled), Persia, Syria, Palestine and Iraq - in fact the whole Arabian peninsula. Profitable neutrality - and the maintenance of oil supplies to whoever could collect them - in practice Britain - might have made the Turks very rich indeed, and perhaps enabled the Sick Man of Europe to recover his health. Instead, despite the quality of their fighting troops, they lost what was left of their Empire, the last Caliph lost his job and title, the Brits got all the oil (for a time, anyway) and immigration to Palestine began that was to lead to the founding of the State of Israel.